Consider the following diagram of the (A E) function and the (45^{circ}) line. a. Suppose the level

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Consider the following diagram of the \(A E\) function and the \(45^{\circ}\) line.

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a. Suppose the level of actual national income is \(Y_{1}\). What is the level of desired aggregate expenditure? Is it greater or less than actual output? Are inventories being depleted or accumulated?

b. If actual income is \(Y_{1}\), explain the process by which national income changes toward equilibrium.

c. Suppose the level of actual national income is \(Y_{2}\). What is the level of desired aggregate expenditure? Is it greater or less than actual output? Are inventories being depleted or accumulated?

d. If actual income is \(Y_{2}\), explain the process by which national income changes toward equilibrium.

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Macroeconomics

ISBN: 9780133910445

15th Edition

Authors: Christopher T S Ragan

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